India’s ministry of mines is working on developing a benchmark index for iron ore for a more efficient and transparent pricing mechanism, government sources said on Tuesday, January 16.
The sources said that a benchmark domestic iron ore index will replace the current mechanism under which iron ore miners self-declare their prices, which was inherently opaque and inefficient and liable for misuse by miners mis-declaring grades to avoid paying correct royalty rates.
Under the current pricing mechanisms, the government accepts self-declared prices by miners based on sampling by authorised laboratories. The Indian Bureau of Mines (IBM) takes into consideration these self-declared prices to announce average sale prices of various grades of iron ore.
Officials said that this led to wide variations of average sale prices for the same grade of iron ore mined in different states.
It is also a common practice among miners to declare a lower price for a higher grade of ore to pay a lower rate of royalty and other statutory duties like the district mineral fund (DMF) which are all based on certain percentage of the average sale price, the officials said.
Development of a domestic iron ore index is the only solution to replace the inefficient average sale pricing currently in place and also eliminate the malpractices associated with it, they said.